August 13, 2011

What brain made bank regulators commit their so expensive mistake?

Sir, Gillian Tett in “The unmasking of our inner reptiles in times of crisis” August 13, writes about Professor Andrew Lo, of MIT segmenting our brains in the reflexive “reptilian”, the emotional “mammalian”, and the rational “hominid”. Tett also quotes Peter Atwater with respect to that a present “sense of insecurity is fostering a wider, longer term shift towards ‘narrow’ horizons.

Our bank regulators, by focusing too much on bank borrowers’ current credit ratings, without caring a iota about what such excessive focusing could imply for the banks’ medium and long term exposures, clearly regulated using a very ‘narrow’ horizon. There is no doubt that such an expensive error must have sprung out from a deep sense of insecurity but, what is not entirely clear is, what brain of the regulators was responsible for it, the “reptilian” or the “mammalian”, as the “hominid” was clearly not.